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Germany is headed for its second recession of the pandemic after the emergence of the coronavirus’s omicron strain compounded drags on output from supply snarls and the fastest inflation in three decades.
Europe’s largest economy shrank by 0.5% to 1% in the final quarter of 2021, according to an estimate released Friday by the Federal Statistics Office. With new Covid-19 cases at a record and the key manufacturing industry still struggling to source components, Dekabank, NordLB and ABN Amro all predict another contraction this quarter.
For the whole of last year, gross domestic product rose 2.7% — matching estimates but still short of its pre-crisis level. Germany’s recovery trails France, Italy and Spain, which are expected to report 2021 expansions of 4.5% or more later this month.
The size of the year-end slump came as a surprise after the Bundesbank last month signaled only a slight decline was likely. But there’s little sign things will improve soon.
Germany reported more than 90,000 daily new infections on Friday, threatening staff shortages, production cuts and potentially tighter restrictions. Meanwhile, power and heating costs have soared, while microchips and other inputs for factories remain scarce.
“I don’t have a whole lot of imagination for positive impulses — supply bottlenecks are persisting, the surge in energy prices is only now reaching consumers, and services are weakened by the virus,” said Andreas Scheuerle, an economist at Dekabank who sees output falling 0.8% between January and March.
The spring, however, should mark a resumption in the pandemic rebound.
“Covid shouldn’t play a major role anymore during the summer — energy prices should have been digested and supply-chain problems may have eased by then,” Scheuerle said. “So in the second and third quarters, we should see solid growth.”
The Bundesbank expects “significant momentum” from the spring onward, predicting full-year expansion of 4.2%. Bloomberg Economics expects output to bounce back already in the first quarter — by at least 0.7% — as infections drop.
A large share of Germany’s struggles is rooted in its outsized reliance on manufacturing — a boon during previous crises that turned into a liability as inputs became harder to find. Carmakers are suffering the most, with almost a fifth of employees in the industry furloughed in December.
Volkswagen AG reported 2021 sales declined to the lowest in a decade and warned chip supply will remain tight in the first half.
“Moving into 2022, the economic situation doesn’t seem to have improved,” said Aline Schuiling, senior economist at ABN Amro. “It won’t take much to slip into recession, though if fears of omicron wane during the first quarter, the decline in output could turn out to be slightly less than at the end of last year.”
More stringent rules on vaccination may ease some pressure on the economy. Chancellor Olaf Scholz reaffirmed his support on Wednesday for making shots compulsory for all adults, while Volkswagen stepped up its own vaccination push.
But inflation is an obstacle. Natural gas prices in Europe jumped to the highest level in a week on Friday amid tensions over Ukraine, suggesting consumer energy costs — already rising at an annual pace of just under 20% — could increase further.
While the government is considering aid for households struggling to pay surging bills and excess savings accrued during lockdowns may cushion some of the blow, shop owners are worried.
Nearly 80% of non-food retailers surveyed by industry group HDE were unhappy with end-of-year sales, which were also hurt by rules banning unvaccinated customers who hadn’t recovered from the virus.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.